This office/flex building at 305 Foster St. in Littleton is one of a pair of buildings being purchased by National Development for about $12 million from a lender that took control of the assets a few months ago.
Continuing to make its mark on Greater Boston’s commercial real estate sector, National Development has committed to purchasing a pair of struggling office/flex buildings in Littleton, company officials confirmed last week. Totaling 182,000 square feet, 295 and 305 Foster St. are reportedly being sold at just under $12 million after being taken back by their lender a few months earlier.
“We’re excited about the potential of the acquisition and redevelopment of the assets,” National President Thomas M. Alperin told Banker & Tradesman. The Newton-based firm has signed a purchase-and-sale agreement for the two buildings, said Alperin, and is now conducting due diligence work. If the deal is completed, National would make physical improvements to 295 and 305 Foster St., Alperin explained, including lobby upgrades and deferred maintenance designed to attract tenants.
CBRE/Whittier Partners is trading the Littleton assets on behalf of Lennar Partners, which took control after previous owner Berkeley Investments surrendered them in the wake of crippling tenant departures. CBRE/Whittier principal Gary J. Lemire declined comment on the current situation, while calls to Lennar’s Miami headquarters were not returned by press deadline.
National is joining a slew of investors clamoring for real estate opportunities throughout the region. Although interest has been the greatest in downtown Boston, suburban buildings have generated their share of attention, even with the office/flex market experiencing difficulties from the lingering economic downturn that has gripped the Bay State for nearly three years.
Stabilized assets sporting limited risk have enjoyed the highest level of sales velocity, as exemplified by National’s disposition of two Woburn office buildings at the MetroNorth Corporate Center. An overseas client of Morgan Stanley is paying a reported $81 million for those two buildings, emboldened by a long-term lease to Raytheon Inc. for all 435,000 square feet in the conjoined complex.
The existence of a strong-credit tenant proved to be the main catalyst in the hefty pricing achieved for the Woburn buildings, which have been marketed by Cushman & Wakefield of Massachusetts. The deal is supposedly being negotiated at a capitalization rate in the 6 percent range, according to observers, unusually low for a suburban office development.
Another significant deal in Westborough reportedly hit a capitalization rate in the 8 percent range, also considered relatively strong. In that transaction, Wells Real Estate Investment Trust II paid $47 million for 9 Technology Drive, a 250,000-square-foot building leased entirely to EMC Corp. since 2000. EMC has yet to occupy the building, but the data storage company’s contract helped foment strong interest in 9 Technology Drive.
Also brokered by Cushman & Wakefield, the Westborough acquisition gives Atlanta-based Wells nearly $250 million in properties throughout Massachusetts, chief investment officer David Steinwedell pointed out in announcing the real estate investment firm’s latest conquest. “Boston’s technology corridor is well known around the world as home to some of America’s finest technology firms, and we’re proud to be the new owner of one of the area’s finest Class A buildings,” added Steinwedell, whose company purchased 9 Technology Drive from the RREEF Funds.
Suburban Snapshot
Unlike the Woburn and Westborough sales, National Development is assuming a level of risk in buying 295 and 305 Foster St., with the Interstate 495/North office market having been hit hard by the economic bust. Technology firms that were at the center of the crash had a major presence throughout the I-495 corridor, leading to a slew of company failures and empty buildings. Spaulding & Slye Colliers, for example, places the current vacancy rate for the I-495/North office market at 17.4 percent and the availability rate at an alarming 34.2 percent, meaning that one out of every three square feet in that 9.8 million-square-foot submarket is available for leasing.
Despite that, knowledgeable players such as National Development have not abandoned suburban Boston, offering a measure of hope that the recovery may finally be underway. Supporting that optimism, Spaulding & Slye did register a tiny level of positive absorption for the I-495/North market in the first quarter, while the suburbs as a whole have enjoyed a solid beginning to 2004. Only the I-495/South submarket experienced negative absorption in the first quarter, with Boston’s suburbs overall posting net absorption of 855,000 square feet. Following an encouraging end to 2003, the active first quarter has only improved the atmosphere for investment sales, particularly for properties with vacancy or questionable rental rolls in place that tend to be hit hardest by negative trends.
Although they will hardly be mistaken for core real estate, 295 and 305 Foster St. do offer a measure of cash flow, according to one broker familiar with the buildings who estimated that the properties are about 50 percent occupied. A smart ownership should be able to guide the buildings back to fiscal health, maintained the source, who said the properties have been attracting potential tenants in recent months and could be close to completing at least one sizeable lease.
“They know what they are doing,” the source said of National, adding that, “it’s a good deal for them.” If the due diligence process is completed without a hitch, National could take control of the buildings within the next few months, something Alperin said his firm is eagerly anticipating. “We think they are a good buy at below replacement cost and are well-positioned for a recovering market that we feel will have a greater level of tenant activity in the future,” said Alperin.
